Case of the Pricing Predicament

I. Major Facts
A. Scott is a salesman for Standard Machine B. Scott received a call from Joann, the purchasing agent at Occidental Aerospace C. Occidental is Standard’s largest and most loyal account D. Scott followed Standard’s fixed price policy and submitted a bid of $429K E. Joann informed him that two competitors submitted bids of “under 390K” and another bid of “a little over 400K” F. Scott needs to cut his bid by an additional 22K to win the contract G. Joann informs Scott that Occidental will be building two new plants over the next four years, representing “a lot of potential business.” H. Scott goes to Tony, the sales manager, to ask for an exception to the fixed price policy II. Major Problem

A. The dilemma for Standard Machine is whether it needs to uphold its fixed price policy or adjust it to maintain the mutually rewarding relationship with Occidental.

III. Possible Solutions/Alternatives A. Standard Machine could leave the fixed price policy in place. For many years Standard and Occidental have been doing business with each other and it has been a mutually rewarding relationship. B. Since the milling machine is for Occidental’s new training center, Standard Machine could just give the machine to Occidental for a joint learning pilot where Standard Machine’s machine operators could be trained on its use. After a few years, Occidental could return the machine or purchase it for half of the original price. C. Standard Machine could withdraw their bid. Tony could argue the fact Standard would have to cut corners on the product thus causing Occidental to not get the quality that they are used to.

IV. Advantages and Disadvantages
A. The advantages to alternative number one:
1. Tony could take over the negotiations and play on Standard and Occidental’s long term relationship and emphasize Standards high level of quality in its...

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1b)
The Group’s organizational structure is shown as the below chart:
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Pricing Strategies
There is no limit to the number of variations in pricing strategies and tactics. This wide variety
of options is exactly what allows small business owners to be so creative. Pricing always plays a
critical role in a firm’s overall strategy: pricing policies must be compatible with a company’s
total marketing plan.
Introducing a New Product
Most small business owners approach setting the price of a new product with a great deal of
apprehension because they have no precedent on which to base their decision. If the new
product’s price is excessively high, it is in danger of failing because of low sales volume.
However, if it is priced too low, the product’s sales revenue might not cover costs. When pricing
any new product, the owner should try to satisfy these objectives:
1. Getting the product accepted. No matter how unusual a product is, its price must be
acceptable to the firm’s potential customers.
2. Maintaining market share as competition grows. If a new product is successful, competitors
will enter the market, and the small company must work to expand or at least maintain its market
share. Continuously reappraising the product’s price in conjunction with special advertising and
promotion techniques helps to retain a satisfactory market share.
3. Earning a profit. Obviously, a small firm must establish...